Wall St falls as tight labor market energizes Fed

NEW YORK, Jan 19 (Reuters) – U.S. stock indexes fell on Thursday after data pointing to a tight labor market fueled concerns that the Federal Reserve will maintain its aggressive path of interest rate hikes and result in a policy lapse that could tip the economy into recession.

A Labor Department report showed weekly jobless claims were lower than expected, indicating the labor market remains solid despite the Fed’s efforts to curb demand for workers.

Expectations that the central bank would reduce the size of interest rate increases further when announcing the policy next month were unchanged by the report. Investors have been looking for signs of weakness in the labor market as a key ingredient for the Fed to slow its policy tightening measures.

Other data showed that manufacturing activity in the Mid-Atlantic region was subdued again in January, while data from the Commerce Department confirmed that the recession in the housing market persisted.

“You have two diametrically opposed pieces of data — one is weakening in consumer spending data and things like that, and on the other hand still pretty robust employment data,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“It’s kind of like a see-saw, you don’t know what the Fed is going to do in terms of raising interest rates again, by how much, holding them steady, are they going to overdo it?”

The Dow Jones Industrial Average (.DJI) fell 119.6 points, or 0.36%, to 33,177.36, the S&P 500 (.SPX) lost 13.93 points, or 0.35%, to 3,914.93 and Nasdaq Composite (.IXIC) 8 points. 0.55% to 10,896.53.

Recent comments from Fed officials continue to highlight the disconnect between the central bank’s view of the terminal rate and market expectations.

Boston Fed President Susan Collins echoed comments from other policymakers to support the case for interest rates to rise above 5%. Fed Vice Chairman Lael Brainard said the Fed is still “searching” for the level of interest rates that will be needed to control inflation.

However, markets see the terminal rate at 4.89% by June and have largely priced in a 25 basis point rate hike from the US Federal Reserve in February, with rate cuts in the back half of the year. .

Both the S&P 500 and Dow were poised to fall for a third straight session, their longest streak of declines in a month.

On the earnings front, Procter & Gamble Co ( PG.N ) fell 1.04% after warning of raw material costs weighing on profits, despite raising its full-year sales forecast.

Analysts now expect annual earnings from S&P 500 companies to fall 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline at the start of the year.

Netflix Inc ( NFLX.O ) fell 0.94% ahead of its planned results after the closing bell on Thursday, where it is expected to report its slowest quarterly revenue growth.

Falling issues outnumbered advancing ones on the NYSE by a ratio of 1.50 to 1; on the Nasdaq a 1.63 to 1 ratio favored decliners.

The S&P 500 posted one new 52-week high and two new lows; The Nasdaq Composite registered 37 new highs and 31 new lows.

Reporting by Chuck Mikolajczak, Editing by Deepa Babington

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